Mismatch between segments chosen and Firm’s resources

In this article we have chosen a few selected cases to impart clarity to the title of the article about mismatch between segments. Between late 1980s and the mid 1990s, Nestle’s segmentation and targeting in the Indian market lacked focus. The company embraced far too many market segments.

In fact, it tried to cater practically to all geographic and socio-economic segments of the population. What was excluded was just the lowest bracket.

It also tried to cater to urban as well as rural consumers, stretching its resources to the limit in the bargain.

Nestle’ was actually trying to replicate the HLL model of marketing fast moving consumer goods (FMCG). While the model suited HLL very well, it was not so with Nestle.

Unlike HLL, Nestle did not have the capacity to provide a large basket it offers that was necessary for catering to all these market segments. It also did not have the channel intensity needed or executing such an approach.

And, when Nestle tried to create such distribution capacity, it found the costs quite high and the sales not large enough to justify the investment in distribution. It also found the gestation involved unacceptable.

It had to review its segmentation and targeting. Nestle now went in for a focused targeting, focusing on a smaller part of the total market segments that were relevant and significant to the company and which matched its resources.

It identified 14 crore consumers, or roughly 55 per cent of the urban population of the country, as its target. For the most part segments that were already consuming substantial qualities of Nestle products constituted the new target group. The group actually consisted of those with a per capita consumption of Rs 77 worth Nestle products per annum. Earlier, the company was catering to the urban population as a whole, with Rs 42 per annum worth per capita consumption of Nestle products

In short, Nestle now narrowed down its target market in line with its resources and the sales and profits it was projecting. It also restricted its marketing offers and channel intensity to what was actually warranted by the new target market.

Example of Pierre Cardin: Pierre Cardin is yet another example. Here, the error in targeting was due to a dilemma. The company ought to have aimed at only the super rich or super and affluent. Not any others. Instead, it misconstrued the so called well to do among the Indian middle class as its target market. With the brand image strongly associated with exclusive apparel, the targeting became totally faulty. It got stuck in the middle; neither the super affluent nor the well to do among the middle class patronized its offer. While the latter dared not look at gowns that cost Rs 2,000 plus, and shirts Rs 850 plus, the former found the prices too low for their status. The Company was not clear as to: What segment it is addressing and what the perceptions of that segment were. The very idea of offering a classy French label at affordable prices was a contradiction in terms, a contradiction with the brand’s perceived super luxury position.

Example of Bata: Even some established players like Bata who were familiar with the Indian market, have erred in segmentation/targeting. In the early 1990s Bata decided to embrace the high end segments of the Indian shoe market as a part of its target. It launched quite a few brands for this segment with higher price tags. The move landed Bata in trouble. This segment was not meant for Bata. In the first place, this segment was not sizable for a company like Bata. Second, the segment did not gel with Bata’s distinctive competence. The segment constituted a mere 5 to 10 per cent of the footwear market in India. It could not provide the volumes to which Bata was used to at the mass end and high volume was essential for Bata for having a healthy bottom line. Worse still, the adoption of the segment misdirected Bata’s entire strategy. The top end of the market suddenly became the main focus of the company and it forgot its bread and butter shoes, shoes that had given the company its identity. And, small, regional competitors started nibbling at Bata’s mainstay. Actually Bata was squeezed at both ends. At the lower end, the smaller competitors attacked Bata’s mass ranges in canvas shoes, school shoes and Hawaii slippers – slots which the company had practically vacated on its own by ignoring them completely. At the high end, niche players, who were better prepared and more willing to face competition in the emerging category were challenging Bata. From a market share of around 15 per cent in the mid 1980s. Bata found its slice down to 10 per cent of the footwear, market in mid-1990s. This year 1995 saw the company running a loss of Rs 42 crore.